The profit numbers for the mutual fund industry in financial year 2010-11 is not expected to be rosy, says Puneet Chaddha, newly appointed CEO, HSBC Asset Management. He says there is a possibility of erosion of profitability as compared to the previous year, given that paying upfront commissions to distributors would dent profitability. In an interview with fe?s Chirag Madia and Muthukumar K , he expects equity markets to be range bound for the next few quarters and expect it to return to activity at the end of the year.
How has the financial year 2010-11 been for the mutual fund industry?
Regulatory changes have impacted the industry in the last couple of years. In 2009, mutual fund houses spent a lot of time trying to come to terms with the regulatory changes (mainly entry load ban). My suspicion is that in 2010-11 there is probably an erosion of profitability.
In the new framework if a fund house acquires the customer and pay lot of upfront commission then they have to wait for two years before fund house starts making money. I feel there has got to be a balance payout of upfront and trail fees. In all, the financial year 2010-11 is likely to be challenging considering that banning of entry loads will increase distribution costs for asset management companies.
How is the response from the just concluded new fund offer (NFO) of the Brazil fund?
The response has been tremendous from the investors. What has happened is that, people have realised that they have been fully invested in India, which has a very good prospect going forward. But everybody knows that concentration risk is something that everyone has to actively work towards; all the eggs in one basket is not a good idea.
Earlier when investors were getting the opportunity to invest abroad, they were also sacrificing returns as one used to invest across emerging markets where returns would average down.
But Brazil fund is a a good opportunity where investors are getting diversification with better track record and in focussed markets. In the last 10 years Indian markets have given a return of over 15% per annum, while Brazil has given 17%, so it is diversification without sacrificing returns.
What are your views on foreign investment in equity mutual funds ? The market regulator is currently taking views from the industry.
The market regulator is still finalising the guidelines on the same. If the investment process is complex, then there are chances that overseas individual who wants to invest small sum of money might prefer off-shore funds over indian mutual fund schemes. The process to attract overseas investors should be very clear ? be it on taxation or otherwise.
What is the house view on the equity markets?
The Indian economy is in good shape, the people who are driving the economic agenda are doing a great job. But currently there is high inflation. No one knows how the monsoon will be, but indications are that it will be good monsoon. Apart from higher fuel prices , there are lot of factors that are are a cause for concern.
However in the long term we expect that next two-three quarter will be difficult for the equity markets and that it will be range-bound. But as we move towards the end of the year, measures that government is taking will begin to take effect, and that?s when markets can see some return to activity.
